Even though many industries have pulled out of the current economic situation even with moderate personnel reductions, major redundancies and layoffs could have been avoided completely or at least it could have been possible to decrease the number of persons being made redundant in several companies, if the income-based incentive programmes had been prepared at the time to cover also the demands, large-scale savings objectives and improvement of the profitability set by the prospective recession. As a result of the avoidance of the large scale redundancies, employees' degree of satisfaction, motivation and confidence in the future, and, with this in mind, the profitability of the company could be better at the present moment.
Now is the time to start preparing for the next economic upturn and to secure better profitability of the company in the next prospective recession. Now it is the most favourable time for the employer to ensure that it may introduce in time an incentive programme that will better take into account the downswings and improvement of profitability, but at the same time, enabling a competitive process of hiring new employees when the new upturn begins. The fact is that when the upturn is at hand and when the competition has begun with regard to new skilled employees, amending of the terms of the incentive programmes and/or introducing new even stricter terms can be rather difficult – or even impossible. A situation where an employer would use several different incentive programmes depending on the economic cycle during which the employees are hired is not possible. In addition, an employer should evaluate and fulfil, among others, the measures necessary to comply with the Finnish Non-Discrimination Act with regard to the incentive programmes so that no employee or group of employees shall be discriminated when interpreting and/or implementing the terms of the incentive programme.
A cost-effective incentive programme also regards taxation issues and social insurance contributions both at the company level and at the employee level. Issues such as the deductibility of the costs for corporate income tax purposes, the definition of the income subject to social security contributions and the amount of benefit considered as taxable in the hands of the employee are very significant matters. If these aspects are considered when different types of incentive programmes are being compared and when the terms for the chosen incentive programme are being prepared, it is possible to reduce significantly the total costs incurred to the employer. A well prepared programme also provides guidelines for an employee on proper reporting of the benefit to the taxation authority.
We are happy to provide assistance on employers on standardising and streamlining their current incentive programme and on helping to create new competitive incentive programmes from the employment law perspective as well as from the corporate and tax law perspective.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
